DairyCo report encourages supply chain to work together to improve farmer confidence

Published 30 March 09

With concerns over the long term
sustainability of the domestic dairy industry, DairyCo's new report
issued today (30 March 2009) sets out all the major factors
affecting the supply chain and the implications of continuing falls
in milk production.

Ensuring a sustainable dairy supply chain outlines
where the industry stands today, including the most recent price
trends and margins. It also presents the headline findings of
the annual farmer intentions survey with estimates of future
production levels.

As seen in other industries, such as steel, oil and coal, it is
normal for the primary producer of a commodity product - as farmers
produce raw milk - to bear the vast majority of the price
volatility within a supply chain. However, the current price
fluctuations due to imbalances in global supply and demand may, in
time, prove unsustainable for the British dairy farmer, following a
long period of underinvestment on farm.

Worrying statistics included in the report (now in its fourth
year and proving to be an accurate assessment each time) show 14%
of dairy farmers responding to the February/March 2009 intentions
survey stated they will leave the industry within two years and
only 18% said they have the confidence to expand.

Huw Thomas, head of market intelligence at DairyCo says: "If
these farmers do what they are saying, UK milk production will fall
to 12.1billion litres by the 2010/2011 milk year as there aren't
enough farmers planning on expanding their businesses to compensate
for the production lost by those leaving.

"If this trend continues, by 2030 UK production could be just
7.5billion litres meaning over 50% of our dairy products will have
to be imported."

The report acknowledges the positive improvements made in the
industry in recent years, for example the establishment of
dedicated retail supply chains. However, it also indicates a
need for all parts of the dairy supply chain to recognise the
vulnerability of the supply base and work together to build farmer
confidence. This would boost domestic milk production and
provide a platform for a sustainable dairy industry.

Mr Thomas says: "All participants in a supply chain have a
vested interest in maintaining it in order to provide the consumer
with what they want and make profits from doing so. If the supply
chain works together to ensure the chain remains sustainable, then
there can be continued investment in increasing efficiency and
development of new products throughout the chain, as well as
securing future supplies which will help to safeguard against
issues of food security and protectionism by other countries."

Helping promote the positive perception of dairy products and
dairy farming with the general public

The development of DairyCo towards a self-sustaining
model.

DairyCo is funded entirely by milk producers, via a statutory
levy on all milk sold off-farm, at the rate of 0.06p per
litre. This provides an annual income of around
£6.5m.

DairyCo Limited was set up in April 2008 following a fundamental
review of agricultural levy boards by Defra. The five existing levy
boards (including the Milk Development Council) were replaced by
one statutory levy board, the Agriculture and Horticulture
Development Board (AHDB).

Reporting in to AHDB are six sector companies - DairyCo covers
the milk sector.